Are covered bonds different from securitization bonds? A comparative analysis of credit spreads

Abstract

This is the first study comparing the financial characteristics and pricing processes of asset securitization (AS) and covered bonds (CB). Using a sample of 6,191 AS bonds and 11,471 CB issued by Western European banks between January 1, 2000 and October 31, 2012, we find that AS and CB are not priced in integrated bond markets. Our results show that credit spreads are higher for ABS than for public CB in both pre-and crisis periods. Considering bonds backed by mortgages, we only find evidence of CB credit spreads being lower than those of AS bonds during the pre-crisis period. Both AS and CB credit spreads are driven by collateral type, credit rating is the most important pricing factor for AS bonds, and we document that not only specific effects related to issuance, but also macro factors and exogenous events are relevant drivers for CB credit spreads. Furthermore, while the first CB purchase programme led to lower mortgage CB credit spreads, the second programme did not have the ECB's desired effects. Finally, we find that the ECB's second programme reduces ABS spreads significantly for tranches issued by non-German banks.